How to end the housing crisis

How to end the housing crisis

The housing crisis in London and other high-demand areas of the country is becoming an ever more important political issue as its invidious effects spread and deepen. Most economists agree on the cause: planning restrictiveness. They also agree how to fix it: weakening planning restrictions. Unfortunately, there is no such consensus among the general public.

Red herrings such as the supposed greed of developers, so-called 'land banking' or an allegedly favourable tax treatment available to landlords are all false but they successfully divert attention away from the real cause of the problem. By contrast, the specific policies which are to blame for the shortage are very popular, especially among homeowners who are much more likely to vote and much less affected by the crisis than those who don't own their own home.

An excellent new report out today proposes three policy measures which promise to deliver much of the economic benefits of a straightforward loosening of planning restrictions with little of the political costs for those who will need to implement them - politicians.

The three measures are:

1. Allow streets to vote on whether they can build anything up to six storeys themselves.

2. Allow parishes to vote on developing ugly sections of green belt in exchange for community benefits (such as parks).

3. Allow city regions to set more planning policy locally, permitting more housing where popular.

These recommendations are remarkable for two reasons. First, they manage to achieve the seemingly elusive combination of political and economic expediency. Secondly, they offer genuinely novel thinking rather than a repackaging of an existing proposal.

The lack of enough housing where it's needed is inflicting serious harm on the economy and on our quality of life. It's putting people off moving to take up jobs (or better jobs). Combined with the knock-on effects on the cost of commercial property, this is grinding down UK productivity. It's stopping (or delaying) people from starting families. Adults are living in their parental homes later than ever, and owner-occupancy rates among younger adults are plummeting.

This is incredibly important because of the sheer scale of the problem and the potential benefits from fixing it. In our 2015 Spending Plan, we highlighted the need for planning reform on building heights and the green belt to bring down the cost of housing benefit. Last year we called for meaningful planning reform to replace the illogical and damaging tax treatment of landlords in Taxing tenants: how taxes on landlords end up hitting tenants.

The authors offer a compelling case that GDP would be 30 per cent higher after 15 years, adding £10,000 to the average household income. It deserves the full attention of anyone with an interest in our housing crisis and the wider economy.

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